Chapter 13 bankruptcy, also referred to as a
wage earner’s plan or
reorganization bankruptcy, allows people with a regular source of income to create a repayment plan
for all or a portion of their debts. Debtors can restructure their debts
and make arrangements to pay them back in installments over a three to
five year period, depending on the amount of their monthly income. Creditors
and collections agencies are forbidden to pursue debtors for payment during
Advantages of Chapter 13 Bankruptcy
Chapter 13 bankruptcy can offer a debtor several benefits that are unavailable
under chapter 7 liquidation. Chapter 13 bankruptcy conveniently acts like
a consolidation loan, in which the debtor makes one consolidated payment
to a trustee. Because it is the trustee’s responsibility to distribute
payment to various creditors, the individual never has to have any contact
with them while the plan is in effect.
Perhaps most importantly, debtors may be able to avoid losing their home.
Chapter 13 can allow them to halt foreclosure proceedings, and they are
given the opportunity to catch up with their mortgage payments over time.
Any other secured debt that they have fallen delinquent on may also be
restructured, possibly resulting in lower payment amounts, while the under
chapter 13 protection.
Additionally, if a third party is partially liable for the debts of someone
filing for bankruptcy, such as a co-signer, a special provision under
chapter 13 may provide them protection.
Chapter 13 Bankruptcy and Eligibility
According to 11 U.S.C. § 109, to be eligible for Chapter 13 bankruptcy,
you must be an individual whose unsecured debts (like medical or credit
card bills) do not exceed $383,175 and whose secured debts (like houses
or cars) do not exceed $1,149,525. These amounts are subject to change
according to fluctuations in the consumer price index. An individual must
be able to prove they have the income required to make their payments,
and must then receive credit counseling and debtor education. Their payment
plan must first pay “priority debts,” including any wages,
child support, or alimony they may owe, and any remaining income must
go toward the repayment of their unsecured debts.
Once the payment plan is completed at the end of three or five years, any
debts that still remain will be discharged, providing that you are current
on your priority payments and that you have received budget counseling
from an agency approved by the U.S. Trustee.
Considering Bankruptcy? Wadhwani & Shanfeld Can Help
If you are struggling with debt, filing for bankruptcy may be the solution
you need to get creditors off of your back and regain your financial freedom.
Both of the partners at Wadhwani & Shanfeld are board-certified bankruptcy
specialists who can help you choose the best financial solution for your
situation. For a
free consultation, please contact a Southern California bankruptcy lawyer by calling (800) 996-9932.